Health reform hurts small businesses

Before Congress rushed approval of the massive government overhaul of health care, House Speaker Nancy Pelosi infamously said: “(W)e have to pass the bill so that you can find out what is in it.”

The more we find out about the Obamacare “reform” that put the federal government in control of one-sixth of the national economy, it becomes clear why Pelosi wanted us to wait.

A case in point is the growing awareness of just one tiny provision buried in the 2,000-page legislation. It requires all businesses to document every business-to-business transaction of $600 and more by issuing IRS 1099 forms.

“To someone who’s never run a business, this may sound like nothing,” says Dan Danner, president of the nonprofit National Federation of Independent Business, a small-business advocacy group. “But Congress hopes to raise $17 billion in added tax revenue and fees from this new mandate. That’s hardly nothing.”

It’s clear what the government gains. As the provision goes into effect in 2012 it will be clearer what it means to businesses.

Today, businesses send 1099 forms to independent contractors, but not to other companies for most purchases of goods and services. But the new provision will require every business to issue forms for every expenditure of $600 and more, including those paid by credit card. Small-business experts say many companies will “send 1099 forms to Costco, their cell phone service provider and the local electricity company,” the Orange County Register reported last week.

Moreover, these businesses must first obtain tax identification numbers for all their suppliers in order to fill out the forms, or else hold back payments to vendors until they get the information, according to the National Association for the Self-Employed.

In an online survey of members, NASE found companies issue an average of 2.3 1099s per year. Under the new law, that average would rise to 26.7. More than 8,100 companies responded to the poll.

“The burden of raising that expected revenue falls again on the backs of small-business owners who already suffer under unmanageable federal paperwork burdens,” according to NFIB’s Danner. “What’s worse, this new reporting requirement has absolutely nothing to do with health-care reform.”

What it does have to do with is the federal government expanding its tax-collecting capability, and demanding small businesses bear the cost of expanded reporting.

More than 79 percent of NASE members polled said the 1099 requirement will greatly or somewhat increase the time they spend on tax preparation, while 74 percent said it will increase their tax-preparation costs.

This is but the tip of an enormous iceberg as we learn what is in the law. Danner notes that the Congressional Budget Office now says Obamacare will cost about $115 billion more than first projected.